The economy and rent
The Ministry of Strategy and Finance and six other economy-related offices reported economic policy goals for 2016 to the president. They had a singular goal of doing whatever is necessary to bolster exports and domestic demand. But their promises were mostly rhetorical as they were not backed up by specific or feasible action plans. The policies they laid out were all-too-familiar and recycled like export promotions, advance execution of budgetary spending and sponsoring of grand sales by retailers.
The only refreshing ideas were related to housing. The Ministry of Land, Infrastructure and Transport said it will significantly increase public housing supplies for rent. The Financial Services Commission came up with housing-backed pension plans for seniors and underprivileged citizens. The government also proposed to create an investment pool on rental deposits by offering higher yields of 3 to 4 percent - higher than the 1 percent range offered by banks on savings accounts - so that people can use their lump-sum jeonse deposits they got back from landlords to pay their monthly rent. This could ease monthly costs for tenants who have shifted to rental contracts from long-term jeonse and motivate the middle and working class to spend more after saving in housing expenses.
More and more people are shifting to monthly rent from jeonse (one or two-year lease with a lump-sum deposit). The jeonse system is a unique rent arrangement in Korea that was useful during the period when the economy was in high gear and housing prices soared. But it is no longer realistic.
Side effects from a rapid transition have been damaging. Rent prices shot up 8 percent last year. Soaring lump-sum deposit values have led to snowballing household debt. Most of the 540,000 people who moved out of Seoul between January and November last year migrated because of the killer rents in the capital.
Monthly rents also do not necessarily help the economy. People would have less to spend because they must render a large portion of their monthly income to their landlords. The economy runs on sentiment. The government should be more proactive in addressing rent woes if it really wants to prop up the local economy.
JoongAng Ilbo, Jan. 16, Page 30
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